Spotlight Q&A with Miriam Bruce and Francesca Ingham: Business Protection & Team Moves

What are the biggest challenges a company faces when a business is “raided?”

The loss of a team in a raid scenario often happens with little or no warning. The initial 24 hours—and the days that follow—are critically important, not only in terms of stabilising the business, but also in devising the most effective legal strategy to mitigate the consequences. A raided company will be dealing with number of competing priorities in the aftermath of a raid, including:

• the immediate impact on client relationships;
• the impact of the departures on the employees who remain within the business, who may be vulnerable to an approach or otherwise destabilised; and
• the protection of confidential information which opportunistic departing employees may use in order to obtain a head start in their new venture.

Our experience over the years—bringing and defending high-profile team-move cases, in and across multiple jurisdictions—allows us to build effective strategies to assist our clients with these challenges as they arise. Our experience also includes defending claims on behalf of the recruiting employer, helping to demonstrate that their recruitment strategies are lawful, and devising pre-action strategies to engineer a successful outcome for our clients without the need for litigation.

What legal action can a company consider following a team move?

There are a variety of potential claims that a raided company should consider, not just against the departing individuals, but also against the new employer for their role in the team move. However, the potential claims will understandably vary, depending on the facts and country where proceedings are issued.

In the United Kingdom, legal action may include claims for breach of contract, breach of the duties of fidelity, good faith and confidentiality. Parties can also seek injunctions, including for "springboard" relief, which is tailored to restraining the former employee from gaining an unfair competitive advantage or a head start because of the employee’s wrongdoing. A claim for breach of fiduciary duties and account of profits may also be possible. The position in Hong Kong and the United States, by way of example, is broadly similar to the position in the United Kingdom.

Are there any steps that companies can take to protect themselves against team moves in advance?

There are a number of proactive measures that businesses can take prior to any team moves taking place in order to ensure that the company is in the best position to protect itself. Many of these steps are non-legal, such as ensuring that employees are well supported in the workplace, with a clear and well-defined career pathway and remuneration structure. From a legal perspective, there are also steps that can be taken to protect against a raid.

For example, in the United Kingdom, Hong Kong and the United States, this can include:

• ensuring that all contracts of employment are regularly reviewed to ensure that they are appropriate in light of the individual's seniority within the business; e.g., ensuring the contractual notice periods are of a suitable duration, that there is a contractual obligation to provide a copy of the restrictive covenants to new employers (such a clause will assist if there is a need to bring action against the employer for inducing a breach of contract) and, where the role is sufficiently senior or it is otherwise appropriate to do so, including provisions requiring employees to self-report any breaches of duties;
• tailoring any post-termination restrictions to ensure that they are suitable in light of an individual's role and ensuring that they are updated on promotion, as well as aligned with the legitimate interests of their employing entity. Where appropriate, it is worth considering whether senior employees should sign up to separate restrictions with group companies too—e.g., in long term incentive plans—to ensure maximum protection;
• training managers in advance about how to deal with such circumstances and the steps that they should be taking when it comes to light; and
• looking at the carrot-and-stick approach holistically, such as by building restraints into long-term incentive plans, and clearly identifying and implementing systems to protect confidential information and detect breaches.

What are the considerations for devising a lawful recruitment strategy?

If recruiting more than one employee from the same employer, it will be important for prospective employers to proceed cautiously to ensure that their actions remain lawful. Based on our experience, there are a number of protective measures that a prospective employer can take to protect itself—and future recruits—from litigation. These include:

• obtaining a copy of potential recruits' current employment contract early on to ensure that there is clarity on the obligations applicable to each individual both before they join and when they start with their new employer;
• instructing potential recruits in writing to (i) not disclose any of the current employer's confidential information, nor to discuss their potential recruitment with clients or colleagues (either in person, over email or via instant message); and (ii) comply with their duties of confidentiality, in addition to any other post-termination obligations which apply; and
• informing new recruits of the potential consequences of breaches of their employment contract with their current employer, and making clear that they are expected to comply in full.

For more information about Mayer Brown’s Business Protection and Team Moves capability, please see Business Protection and Employment & Benefits. For further information about restrictive covenants across jurisdictions, please see A Guide to Restrictive Covenants.